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The Unexpected Impact of a Securities Case on Employment Law

June 18, 2018, 10:09 AM

A recent U.S. Supreme Court ruling about when securities fraud class actions can be filed could ripple into employment law, practitioners told Bloomberg Law.

“This decision, I regret to say, has taken a step toward making many civil rights unenforceable,” Joe Sellers with Cohen Milstein Sellers & Toll PLLC in Washington told Bloomberg Law. Sellers represents workers in employment lawsuits.

“The underlying rights are only as effective as the mechanisms that are available to permit their enforcement,” Sellers said. “If the mechanisms that exist to permit the enforcement of those rights have constraints on them, then those rights are abrogated.”

One of those mechanisms is a class action, which lets one person sue on behalf of others in a similar position who may have experienced the alleged wrongdoing. If a court certifies a class, all individuals who meet the definition of a class member are automatically included. But members can opt out if they want to pursue their own lawsuit, don’t like the terms of a settlement, or simply don’t want to be part of the class.

The case, China Agritech Inc. v. Resh, involved corporate shareholders who wanted class action status for their lawsuit that alleged the fertilizer manufacturer committed securities fraud. Their case followed earlier fraud lawsuits in which the court denied class action certification.

The justices unanimously held that a later-filed class action can’t “piggyback” on one that was filed earlier in order to be considered timely. Justice Sonia Sotomayor, in a concurring opinion, said she may have ruled differently if the case involved another area of law because of the unusual rules that apply in securities litigation.

Solo Lawsuits Aren’t Always Feasible, Lawyers Say

Sellers represents women who allege sex discrimination against Walmart. They filed regional class actions after the high court in 2011 ruled that a nationwide class action was too broad to satisfy a requirement that a class action include claims common to class members.

Sellers filed an amicus brief in the China Agritech case that said cutting off the window for a follow-on class action could end up blocking a subsequent case from being filed. As a result of the decision, “the follow-on regional classes which we’d been pursuing probably will no longer be available to us,” Sellers said.

Putative members of the class wouldn’t run into the statute of limitations problem if they filed individual lawsuits, Sellers said in his brief.

“But if your case has any complexity it’s not economical to bring it individually,” he told Bloomberg Law. “If you require people to bring it only as an individual rather than collectively, then you may have effectively precluded them from bringing the claim at all.”

One of the differences between filing one’s own lawsuit and participating in a class action is that a solo litigant can draw unwanted attention in a way that a class member is less likely to receive, Emily Martin, general counsel and vice president for education and workplace justice at the National Women’s Law Center, told Bloomberg Law.

“If you’re still working for that employer, it is incredibly difficult to stand up and paint a target on yourself,” Martin said. “Lots of people will feel like they can’t go forward because the risks are too great.”

Impact on Wage Cases Less Certain

Wage-and-hour cases under federal law are different from discrimination and other employment law cases. The Fair Labor Standards Act has its own procedure for litigating cases with many plaintiffs, which are called collective actions.

Collective actions are similar to class actions, but differ in some significant ways. One of them is that a collective action doesn’t automatically include all individuals who meet the parameters.

Even though the rules of class action procedure don’t govern an FLSA collective action, they can affect a lawsuit in federal court that alleges a violation of a state wage-and-hour law. A case involving state law might be heard in federal court if the complaint also alleges violations of federal law or if the defendant takes advantage of a provision in federal law that lets it move a case that is initially filed in state court into federal court under some circumstances.

“Right now the wage-and-hour multiple-plaintiff case is the number one case being brought against employers,” Gerald Maatman, a partner in the Chicago and New York offices of Seyfarth Shaw LLP, told Bloomberg Law. Maatman authors the management law firm’s annual report on class action employment litigation.

But FLSA collective actions may not be affected by the China Agritech ruling, Paul DeCamp told Bloomberg Law. DeCamp represents employers in wage-and-hour matters as a member of Epstein Becker & Green P.C. in its Washington office.

“It does not appear that the decision will affect collective actions because of the different procedural mechanism used under the FLSA,” said DeCamp, who is co-chair of the firm’s wage-and-hour practice group. “Nevertheless, courts dealing with collective actions might look to China Agritech when deciding whether and when to apply equitable tolling.”

Equitable tolling is the legal term for temporarily stopping the clock on a statute of limitations.

Timing Matters

The question the high court resolved in the China Agritech case was how to handle the statute of limitations for members of a putative class when the court denies class action status. A statute of limitations is the period of time after a violation occurs in which the plaintiff may file a lawsuit. A complaint filed after the cutoff period will be dismissed as untimely.

If a court rejects class action status, members of the proposed class may try again by filing a new class action that proposes different parameters for who the class includes.

The Supreme Court ruled that the cutoff period for filing a follow-on class action isn’t paused while a court considers whether to grant class certification in an earlier case. The court left open the possibility that the statute of limitations could be paused with respect to follow-on individual cases.

The clock may stop for a number of reasons, one of which is if the person who sued wants the case certified as a class action but the court says no. Other individuals who may have been part of the class, if it had been certified, would be able to file their own lawsuit, and the second court would pause the cutoff window for the period when the first court was weighing class certification.

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bloomberglaw.com

To contact the editor responsible for this story: Terence Hyland at thyland@bloomberglaw.com

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